Understanding The Changes To The Buy To Let Tax Relief
Changes Landlords Should Watch Out For
Buy to let tax relief and property tax can be a complex aspect of owning a property to navigate. While this is especially true for new homeowners, even experienced owners may have a hard time keeping up to date with changes. With many other things such as tenants and maintenance to think about, it can be easy to forget about tax. During your property tax lifecycle, you will essentially need to think about 3 different stages of tax paying. The first tax you pay is, of course, when you buy your property. Secondly, you will need to pay tax for every year in which you rent out your property. Lastly, you will need to pay tax when you sell your property.
In this article, we will focus on the second part (income tax) of your property tax-paying requirements and touch on some of the changes that landlords should take note of. Understanding the changes to the buy to let tax relief is crucial if you want to avoid penalties. If you are self-employed or a small business owner we advise you also read through our article New Income Tax Calculations 2021/2022.
Owning Property Individually vs Through A Business
Buying and managing your buy to let property will be liable to different deductions based on whether you manage it as a business or an individual. Many property owners have opted for this route in recent years, in order to pay Corporation Tax on their properties. Corporation Tax is significantly lower than the tax that individuals pay. Even though you will still be taxed on dividends if you take profit out of the company, there is flexibility in your options to do this. Additionally, as of April 2020, mortgage interest will no longer be an allowable expense for individual property investors. However, it will still be allowed for companies that hold properties.
Essentially, if you are aiming to live off of your rental income, then a company might not be the way to go since you will pay corporation tax first, then taxes on your dividends. If this is a regular transaction, the taxes could add up fairly quickly. Getting in touch with property tax accountants will help you with this important decision.
Buy to Let Tax Relief: 2021/22 Changes To Take Note Of
You may have to complete a self-assessment tax return if you are making an income from letting a property. However, this does depend on your total income. The rate of income tax that you are liable for varies by income bands. In the 2021 Budget, a rise was announced after which income tax thresholds will be frozen until 2026. As of April 2021,the personal allowance is set at £12,570. This means that you pay the basic rate of 20% of your income on anything after that amount up to and including £50,270. Higher rate tax at 40& of your income applies to incomes over £50,270. if you make more than £150,000, you pay the additional rate of 45 per cent.
You may have to complete a self-assessment tax return if you are making an income from letting a property. However, this does depend on your total income. The rate of income tax that you are liable for varies by income bands. In the 2021 Budget, a rise was announced after which income tax thresholds will be frozen until 2026. As of April 2021,the personal allowance is set at £12,570. This means that you pay the basic rate of 20% of your income on anything after that amount up to and including £50,270. Higher rate tax at 40& of your income applies to incomes over £50,270. if you make more than £150,000, you pay the additional rate of 45 per cent.
Not All Aspects Have Changed
This is also the first full year where the Private Residence Relief has been reduced. Previously, you would qualify for Private Residence Relief at the time of selling your property if you have lived in it before letting. Meaning no Capital Gains were payable for the time you occupied the house, as well as 18 months after moving out. The new ruling has reduced this amount to 9 months. Additionally, the £40,000 of lettings relief (claimable if you rent out a property that’s been your main home) will only apply to landlords who share occupancy with their tenants.
While there are some changes that were brought into play, some things have remained the same. This includes capital gain tax, as well as corporation tax. Furthermore, it includes the fact that professional assistance is always a good idea to ensure a good understanding of the changes to the buy to let tax relief! Spartan Accounting Group will schedule a free 30-minute business consultation. Now you don’t need to wonder who are the best small business accountants near me? Spartan accountants specialise in accounting for the propertyand real estate sector. Get in touch with the leading fixed fee accountants in London today to see how we can make your property tax submissions a breeze.
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